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Loonie rallies to 5-month high on cheap ECB loans

Tags: Loonie

The Canadian dollar surged to its strongest level in more than 5 months against the U.S. dollar on Wednesday after a robust uptake of the European Central Bank's latest offer of cheap loans buoyed riskier assets.

Around 800 banks took 530 billion euros ($711.45 billion US) at the ECB's second-ever offering of three-year funding, essentially in line with market expectations, driving demand for higher yielding currencies at the expense of the euro.

"Once again it's being driven by a rally in most risky currencies against the safe-havens rather than anything specific to Canada," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.

"Short term they're taking their cues from other asset markets ... ultimately it comes down to the support that's being provided by central banks around the world."

The ECB's boost to liquidity, which amounts to over one trillion euros when combined with an early offering in late December, is also expected to support demand for equities, commodities and peripheral European bonds.

In early trading, the Canadian dollar stood at $1.0122 US, up from Tuesday's North American session finish at $1.0046. Earlier in the session, the currency jumped as high as $1.0127, its firmest level since September 19.

Cole put the next near-term resistance level for the Canadian currency around $1.0025.

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